Q. Isn't he still a New Jersey resident since he is a dependent on my tax return? Would that change the answer?
A. Yes.
Rule #1: out of state college students usually have to pay income tax to their home state.
He appears to still be a NJ resident. He must file a NJ resident return and pay NJ tax on that out of state income.
The general rule is: you report all your income on your resident state return, including the income earned in the other state. Your home state calculates tax on all your income, but gives you a credit, or partial credit, for tax you paid to the other state.
When you worked in a state without an income tax (e.g. Florida), there will be no credit, since there was no FL tax. In other words, having worked in a state without an income tax does not get you out of paying state tax on that income, to your home state.
When away at college, students are considered to still be residents of their home state. The fact that he was away for a full year (did not return home for school breaks) might be cause for reviewing his residency status. But, the fact that you claim him as a dependent means that he is still a NJ resident.
There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
- He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
- He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
- He lived with the parent (including temporary absences such as away at school) for more than half the year
It's unlikely that you could claim him as a dependent under the qualifying relative rules if he "worked a full year" (his income would be too high). So, he must be considered as still living with you, to be a qualifying child dependent, and therefore is a NJ resident.
So, the conclusion, here, might be that you and he have to choose between him not paying NJ tax or him being your dependent. But, it's not clear, in your case, whether that's really optional (has he permanently moved out of your home?).
See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...
